Economists Using Google Search Data for Guidance

Economists Using Google Search Data for Guidance

  • Posted on: 9 December 2015
  • By: admin

Economists Using Google Search Data for Guidance

Margo Sugarman spent months last year searching on Google for the appliances to complete her dream kitchen, scouring the Internet for information on the latest double ovens and low-noise mixers. Not only did those queries guide the Tel Mond, Israel, resident to the best deals for her 70,000-shekel ($17,680) renovation, they also helped the Bank of Israel, which looks to searches like Sugarman’s to assess the state of the nation’s $243 billion economy.

http://www.bloomberg.com/news/2012-08-02/your-119-billion-google-searches-now-a-central-bank-tool.html

Why You Should Care

It’s refreshing to see that some policy makers are using real life actions to aid decision-making. This is significantly different than relying on mathematical models that work until they don’t. In fact, many economists believe that their economic theories don’t have to be accurate in the real-world if they can be proved correct through their modeling tools…that’s refreshing. What is funny about this article is that the economist community still wants to see more data. It’s not enough to use common sense. Nevertheless, there will be hundreds of studies to prove that when more people search for ‘New Cars’ on Google, it is likely more people are thinking of buying a new car. 

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India’s Power Outage Meant that 10% of the World’s Population Went “Dark”

India’s Power Outage Meant that 10% of the World’s Population Went “Dark”

  • Posted on: 9 December 2015
  • By: admin

India’s Power Outage Meant that 10% of the World’s Population Went Dark

Over the last two days India has suffered a blackout that cut electricity for over 600 million people. You can read the New York Times recap at http://www.nytimes.com/2012/08/02/world/asia/power-restored-after-india-blackout.html?pagewanted=all

Why You Should Care

As a person that lived in Manhattan during the Northeast blackout of 2003, this story hits close to home. New York City is home to roughly 8.2 million people, so I cannot even begin to fathom 600 million people without electricity for two days, not to mention that India’s general infrastructure cannot even be compared to New York’s, and those 48 hours in NYC were extremely uncomfortable. We are all happy to see the power restored but it underscores the need for modern infrastructure, and should be a wake-up call to Americans that we need to stay vigilant about our own infrastructure improvements. 

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Household Savings Rate Rises to One-Year High, a Classic Catch-22

Household Savings Rate Rises to One-Year High, a Classic Catch-22

  • Posted on: 9 December 2015
  • By: admin

Household Savings Rate Rises to One-Year High, a Classic Catch-22

Data on personal income and spending today showed the household savings rate rose to 4.4% in June, its highest level in a year. You can read the recap from CNBC at http://www.cnbc.com/id/48413981

Why You Should Care

This is one of those catch-22 metrics where every positive can be offset by a negative. Americans are notoriously bad “savers” and, as a result, many live paycheck-to-paycheck with little to no cushion for tough times. That is why it is encouraging to see a 4.4% savings rate posted in June. But, and here’s the rub, a higher saving rate means that consumers are consuming less, which ultimately means slower economic growth. 

Typically consumers will pull back spending in the face of uncertainty, and lately the headlines have fed that uncertainty. What we need is for consumption to rise, but at a slower pace than wages (wages actually posted 0.5% growth in June which is good). If we can get that combination we can achieve sustainable economic growth. The chart below shows the personal savings rate back to December 2007, and you can see the massive spike in savings rate during the 2008 financial crisis, and the steady reduction in savings rates for the last 2 years.

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Don't Believe the Hype-The Exceptionally Poor IPO's of Social Media Darlings

Don't Believe the Hype-The Exceptionally Poor IPO's of Social Media Darlings

  • Posted on: 9 December 2015
  • By: admin


Don't Believe the Hype-The Exceptionally Poor IPO's of Social Media Darlings

Now that the fervor has died down and CNBC no longer covers Facebook 24 hours a day, let’s take a look at the near term performance of these once beloved stocks.  With an average return of negative -57% since their IPO, Zynga, Groupon, and Facebook have been total failures.  The degree to which these stocks were overhyped is reminiscent of the dot-bomb era where people lost sight of reality and reason.  I mean, how sustainable is a business that is built on people being virtual farmers, planting virtual crops, and paying for them with virtual money?  It was certainly not worth $7 billion dollars.  Take a look at the table below.

 

 

Pre-IPO Price

07/26/12 Price

Return

Zynga

10.00

3.11

-69%

Groupon

20.00

7.05

-65%

Facebook

38.00

23.66

-38%

       
   

Average Return

-57%

 

While these results are short-term and could improve, the lesson is two-fold.  1) Beware of over-hyped stocks and 2) Valuations matter.  You cannot pay any price for a company. While it might be exciting to own sexy, tech companies it is important to understand what you’re paying and what the business is worth. 

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U.S. Dept. Of Agriculture Says “Get Ready for Higher Food Prices”

U.S. Dept. Of Agriculture Says “Get Ready for Higher Food Prices”

  • Posted on: 9 December 2015
  • By: admin

U.S. Dep. Of Agriculture Says “Get Ready for Higher Food Prices”

The U.S. Department of Agriculture released its first report detailing their initial estimates of the increase in food costs expected in 2013 due to the current draught in the U.S. You can read the New York Times article at http://www.nytimes.com/2012/07/26/business/food-prices-to-rise-in-wake-of-severe-drought.html?_r=1&ref=agriculture

Why You Should Care

We’ve written about the draught quite a bit but this is the first blush at the potential impact to your wallet. The Department of Agriculture sees the price of beef rising 4%-5%, dairy products +3.5%-4.5%, eggs +3%-4%, and pork +2.5%-3.5%. The reason for the increase is that corn is used as feedstock for these animals. 

The average American spends roughly 12% of their annual income on food according to the Department of Labor and at a time when American wages are stagnant and the U.S. economy is struggling to maintain 1.5% growth, the last thing we need is a big rise in food costs. Keep your eyes open for the rise in prices and plan accordingly.

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Don’t Get Carried Away when it comes to Judging “Demand” for Housing

Don’t Get Carried Away when it comes to Judging “Demand” for Housing

  • Posted on: 9 December 2015
  • By: admin

Don’t Get Carried Away when it comes to Judging “Demand” for Housing

A U.S. Commerce Department report today showed that sales of new homes in June fell 8.4% from the prior month, although sales were still up 15% from last year. You can read the recap from CNBC at http://www.cnbc.com/id/48318563

Why You Should Care

If you look at the stocks of homebuilders, you would think that the boom times of the early-to-mid 2000’s were back. The SPDR S&P Homebuilders ETF, the XHB, which tracks the U.S. homebuilder index, is up roughly 71% this year as housing numbers have been bottoming. But the new home sales report this morning paints a different picture:

  • New sales fell to their lowest level since January (339,000) down 8.4% m/m
  • Supply levels crept up slightly to 144,000 in June from 143,000. That was the first increase in supply levels since July 2006 and represented 4.9 months of inventory
  • Median new home prices fell 3.2%  y/y in June to $232,600

We agree that the worst of the housing troubles are behind us, but the enthusiasm being shown for the housing market seems to be getting a bit too frothy. Without employment and wage growth coupled with loosened lending standards it will be difficult to stoke new demand for homes even though new households are forming every day.

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Dr. Doom Predicting Slow U.S. Economy for “Years”, Is He Right?

Dr. Doom Predicting Slow U.S. Economy for “Years”, Is He Right?

  • Posted on: 9 December 2015
  • By: admin

Dr. Doom Predicting Slow U.S. Economy for “Years”, Is He Right?

In a recent Op-ed for Project Syndicate, economist Nouriel Roubini, affectionately nicknamed “Dr. Doom,” lays out a thesis for continued sluggish growth of the U.S. economy with a potential recession in 2013. Is he right? 

You can read the Op-ed at http://www.project-syndicate.org/commentary/american-pie-in-the-sky

Why You Should Care

Dr. Roubini lays out a five-pronged argument for why the U.S. economy will continue to post sluggish below trend growth for the remainder of 2012 and could potentially tip into outright recession in 2013. His points are:

·         Slowing job growth of the second quarter continuing

·         Uncertainty over the looming fiscal cliff causes businesses and consumers to retrench

·         Fiscal cliff amounts to 4.5% of GDP, lack of action by Congress allows tax cuts to expire

·         Wages have actually been declining, so less disposable income for consumers

·         External factors slowing U.S. economy (Eurozone, China softness, emerging market slowing)

We wanted to examine this Op-ed to ask the question “with all of these negatives, can the U.S. economy grow?” We share Dr. Roubini’s concerns, and the simple fact is that these concerns are shared by everyone that is connected with forecasting anything that relates to the economy. All of his points are valid, they just aren’t absolute. One problem we have with Dr. Roubini is that he is ALWAYS shouting about the negatives and predicting “once-in-a-lifetime” crashes. 

In the meantime, the U.S. economy has expanded for the last 2 years, the U.S. has created over 3 million jobs since October of 2010, and stock prices are up over 100% since the March 2009 lows. We may indeed fall into recession in the U.S. due to Roubini’s list above, but we also must recognize that governments around the world want to avoid another 2008 meltdown and will likely do all they can to avoid it, which means the timing of that contraction is in doubt.

We also saw this same pattern evolve in 2011 as the debt ceiling debate raged in the U.S.  Emerging markets were slowing, Europe was dealing with its crisis, and job growth and economic activity stalled in the U.S.  The debate went down to the 11th hour, S&P cut the U.S. debt rating, and business activity re-accelerated once the uncertainty had passed.

The U.S. economy is resilient and dynamic, illustrated by the fact that within just 2 years of the end of financial crisis (The Great Recession) which started in 2008 we had risen above our prior peak in GDP. It says a lot about the people of this nation. We are learning to live in this environment of constant uncertainty. It isn’t comfortable, but life does go on. Without much of a growth cushion however, we should be prepared for minor stalls and contractions and should not long for the days of debt-fueled growth that preceded this new reality.

One thing that we at Pathlight have tried to impress upon people is the simple fact that this is what a deleveraging process looks like. You cannot look at the U.S. economy prior to 2008 as the proxy going forward.  Since the 1980’s, U.S. consumers have had a seemingly insatiable appetite for debt, but now credit is scarce, and the ability for households to service that debt has been reduced. You have to look at U.S. economic growth in the context of this new deleveraging reality, and that means lower growth and greater potential for contraction.

One of the biggest impediments to economic growth right now is the lack of political will in the U.S. and Europe. Without proper policy changes we will simply repeat the problems of our past and perform our ritual can kicking. We need leadership from our politicians, and we know that’s asking way too much. But the coming Presidential election will provide some greater clarity, regardless of who wins, and we have to have some faith that politicians understand that the fiscal cliff must be addressed if we are to avoid a recession.

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As Solvency Pressures Mount, Spain and Italy Ban Short Selling

As Solvency Pressures Mount, Spain and Italy Ban Short Selling

  • Posted on: 9 December 2015
  • By: admin

As Solvency Pressures Mount, Spain and Italy Ban Short Selling

In response to renewed concerns about European solvency, regulators in Italy and Spain both moved to ban short selling. You can read a Bloomberg recap at http://www.bloomberg.com/news/2012-07-23/spain-italy-ban-short-selling-of-stocks-to-slow-market-turmoil.html

Why You Should Care

This is a great reminder that you cannot become complacent when investing in these turbulent times. Remember, we have not “fixed” anything when it comes to Europe and it will continue to rear its ugly head until we do. The move to ban short selling is an attempt to slow the declines in European equity markets which have seen aggressive declines (Spain’s IBEX is down 12% in just 48 hours). We saw this in the U.S. during the financial crisis as well, but at the end of the day, weakening economies and fears of insolvency will likely drive European stocks lower even without short selling.

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Shooting in Aurora, Colorado Leaves 12 Dead and 38 Wounded

Shooting in Aurora, Colorado Leaves 12 Dead and 38 Wounded

  • Posted on: 9 December 2015
  • By: admin

Shooting in Aurora, Colorado Leaves 12 Dead and 38 Wounded

A gunman opened fire on a movie theatre crowd in Aurora, Colorado, killing 12 and wounding 38 more. Police have a suspect in custody. You can read the CNN story at http://www.cnn.com/2012/07/20/us/colorado-theater-shooting/index.html?hpt=hp_t1

Why You Should Care

Days like this, when events such as this senseless act of violence occur, should make us all reflect on just how fragile life is. It should also make us angry--angry that more and more of these types of events seem to be occurring all over the world. Even after 13 years, I’m sure the scars of the Columbine massacre are still all too fresh for the people of Colorado. This is too much for a community to endure. Stock markets are open and business continues for those outside of Aurora, but our thoughts and prayers are with everyone that has been impacted by this tragedy. 

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U.S. Postal Service Set to Default on $5.5 Billion Pension Contribution

U.S. Postal Service Set to Default on $5.5 Billion Pension Contribution

  • Posted on: 9 December 2015
  • By: admin

U.S. Postal Service Set to Default on $5.5 Billion Pension Contribution

The USPS is required to make a $5.5 billion contribution to its pension fund on August 1st, but the struggling organization does not have the funds to cover the deposit and needs Congressional action to stay current. You can read the Wall Street Journal story at http://online.wsj.com/article/SB10000872396390444097904577535322022316422.html

Why You Should Care

The struggles of the Post Office are not new news, but the theme of this recent trouble is pervasive in Western societies. Here we are again, faced with mismanagement and rising retiree benefit costs that are choking cities, states, and every Federal agency and safety net program. Between now and September 30th, the USPS needs to contribute $11 billion to its pension plan, but the organization ran at a loss of $3.2 billion on its operations during the second quarter alone! 

People who dump on the USPS don’t give it the credit for what it actually does. It really is an amazing feat that you can drop an envelope in a box and within a few days it’s delivered to wherever you indicated. Give them credit. We have come to expect mail to reach its intended destination, regardless of where, for a mere $0.45. If we want services we have to pay for them, and it costs more than $0.45 to send a piece of mail from NY to Alaska. The post office, and other “pay for” services, needs a solution that incorporates retiree benefit reduction as well as price rationalization in order to survive.

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